ATX Networks will pay up to $26 million for the Petah Tikva-based start up, which targets the home video network market.

Arcos CEO Yariv Reches and CTO Avi Eliyahu founded the company in 2005.

ATX will pay $12.5 million when the deal is signed, of which $1.15 million will be in escrow for 18 months. It will pay an additional $13.5 million from royalties on Arcos sales, if any, over three years from the signing of the agreement, including up to $2.5 million in royalties from sales in 2012 of Arcos's current product, and up to $11 million from royalties on sales of the company's new products in 2012-14.

Arcos will also distribute a $450,000 dividend when the sale is closed.

Xenia CEO Anat Segal said, "We are pleased by the sale of Arcos, which is a major exit for Xenia that validates its business model and proves its ability to identify projects with potential, invest in them, and assist them to commercial success."